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Socialism & Capitalism: The Systems Mindset Dissection

by Sam Carpenter

In the three maps above: Note the congruency between economic freedom and personal wealth. Let’s find the connection.

I post this on December 1, 2009: Exactly 25 years ago today I went into business for myself. This analysis is a thank you to an economic system that works.

This is a two week post because it’s a long one and covers a lot of ground. I will use the December 15th post to respond to comments.Prelude: My purpose in writing about Work the System methodology is not to convince you to see things my way. It’s to illustrate another way of navigating life. In my writing, what I conclude about places, things and people is of secondary importance. I use these real-life scenarios only to illustrate what is of primary importance: a simple and mechanical life-perspective that can enormously improve your existence in the areas of money, freedom and personal peace. This perspective is a different way of getting through the day, moment-to-moment; a “systems mindset” that anyone can immediately and permanently internalize. What is it? It’s the visceral certainty that life is not an unpredictable, swirling sea of sights, sounds, people and events, but instead a collection of logical independent systems, 99.9% of which work just fine. From this vision, everything changes. So don’t get overly caught up with my opinions and conclusions! Instead, focus on the systems mindset thread that leads me to these opinions and conclusions.

Setting things up. I’m going to spend most of this post setting up my hypothesis. Then I’ll draw conclusions at the end, all the while explaining the systems mindset perspective.Note that it’s not my job to please all my readers. I can’t apply the systems mindset to economics or government without coming to some real-world opinions. As I beat-to-death in my book, Work the System, the “systems mindset” is divorced from religion, politics and those things which must be taken on faith. It’s simple mechanics. But because of this particular topic, I can’t avoid testing political sensibilities and so I expect robust reader-flak in the comments section. That’s fine, but before unleashing understand my positions are mechanical observations, not ideological read-off-the-menu talking points. If my conclusions don’t agree with your conclusions, that doesn’t make either of us fools. If you dispute my points, I challenge you to come back at me in the systems mindset context, rather than the run-of-the-mill ideological rant. I’ll remind you of this again at the end of the post.

Individual systems. Per the systems mindset, we’ll focus on individual systems and how they mechanically interact with each other, rather than general pronouncements of belief. (Most people get so-so results in life by haphazardly applying their general, amorphous beliefs to their physical surroundings. My approach is the reverse. I discuss how a careful moment-to-moment observation of one’s physical surroundings results in new and powerful “in-the-gut” beliefs, beliefs that change behavior so one can quickly start getting what one wants out of life.) Here, as I discuss macroeconomics and geopolitics in simple terms, I will focus on the following separate system entities: the government system, the private sector economic system and individual “people” systems.

Comparative Economies. Let’s use the United States as an example of afree market economy. (Is the U.S. the “best” example of economic freedom? Probably not. Try Hong Kong, Singapore, Australia, Ireland and New Zealand.)Per Wikipedia, a free market is “a market without economic intervention and regulation by government.” Capitalistic, this economic system is dominated by the “private sector,” with citizens able to earn and keep profits according to their own success. Also, production is mostly owned by individuals rather than the government. The opposite economy is a redistribution-of-wealth, planned or “command-and-control” economy, “in which the central government makes all decisions on the production and consumption of goods and services.” Any profits are, one way or the other, channeled to the state. The state also owns production including control and sale of natural resources. North Korea is my example. The private sector in North Korea is tiny with much of it operating underground, circumventing the dominant state-controlled economic system. Lovely.

The capitalist free market economic system typically exists within a democracy of one type or another. A democracy has non-ideological leadership that holds freedom of the individual (“the ultimate minority”) as the first priority. The planned economic system resides within a socialistic or totalitarian state which is a product of far-left or far-right leadership. Citizens have limited freedoms as the state itself reigns supreme (despite the state’s endless proclamations to the contrary).

There is also the “mixed” economy in which governments “intervene,” but for our systems mindset analysis let’s go with the polar-opposite nations of the U.S. and North Korea, understanding that most other nation-states fall somewhere between the two in market intervention, taxes, personal freedoms, opportunity, etc.

I’m using the United States and North Korea as examples because they differ dramatically in how they are managed and (consequently) how much prosperity is available to their populations. Most economies today are free market economies but in addition to North Korea, strictly planned economies still exist, for example, in Cuba, Libya, Iran, Saudi Arabia and Burma. These are not destination-resort hot-spots. The 80’s and 90’s saw the demise of a number of planned economies including the Soviet Union and, to some degree, part of the “old” China.

In systems mindset terminology, a nation’s economy is a “primary system.” Yes, each economic system interacts with other economic systems, but each is self-contained enough to be considered its own individual self-contained entity.

Here are pertinent Work the System tenets that apply to the discussion of any system:

Life is not complicated. The world is an assemblage of distinct systems, not a seething uncoordinated mass of sights, sounds, people and events

A system has a single primary purpose. It’s why it exists

The simplest explanation is usually the correct explanation. Also, the simplest solution is usually the correct solution

“Purpose” and “efficiency” are of root importance in any system

In order to remain at peak effectiveness as the environment changes, an efficient system must continually make internal adjustments. An inefficient system adjusts infrequently and/or at the behest of one or more unrelated outside interlopers

An efficient system will become inefficient if preyed upon by another system

In most cases it’s best to tweak an inefficient system into efficiency rather than to altogether discard it in order to start over from scratch

Following are some systems mindset distinctions between socialistic and capitalistic economies. I’m keeping this simple, mechanical and non-theoretical (perhaps to the chagrin of some of you blue-blood economists and high finance whiz-bangs).

The purpose ofany country’s economic system is to “distribute goods and services.” However, governmentsystem purpose varies dramatically from one country to the next. In the United States, per founding documentation, an important part of government’s role is to protect and manage the capitalistic private sector economic system so it can operate freely. Brilliantly conceived and designed, these documents also provide protection from the government’s own encroachment. Contrast this with North Korea where government directs all aspects of the socialized economy. It has “nationalized” the private sector. It owns it. Under the guise of “terrific equal outcome for all,” the economic primary system of North Korea – and really, the population itself – exists at the pleasure of the government primary system. North Korea is noted for massive starvation, “re-education” camps, spastic and contentious interactions with other nation-states and intense personal regulation of life. (Imagine government departments entitled “Propaganda and Agitation Department” or the “Culture and Arts Department of the Central Committee of the KWP.” One’s first thought is not, “Gee. I bet this works out swell for the people!”)

Efficiency. Here’s the crux of any systems mindset analysis: A primary system will be efficient if it can adapt to changing circumstances by making unobstructed small, frequent and fast adjustments that promote the overall purpose. The United States, UK, Austrailia, Switzerland, Sweden, etc. have free market economies in which a vast range and number of internal adjustments are made spontaneously via a myriad of sub-systems as buyers and sellers constantly make decisions per their individual desires and capabilities. Some systems are more efficient than others for one reason or another; Some are managed better than others and so on. Things move quickly and there’s lots of competition so, in-the-moment, goods and services survive if they are of value and they fail if they are not of value.

Since there is economic reward for success and punishment for failure, people have incentive and so there is much energy expended to get things right. It’s an efficient flow and the economy as a whole sings as citizens work hard in order to succeed while at the same time enjoy enormous individual freedom and high standards of living.

This is important: The capitalistic systems/processes of the private sector are self-cleansing. Inefficiency simply doesn’t survive. An inefficient system or process quickly heals itself or just as quickly disappears.

This sounds backwards and over-simplistic but here’s the best way to look at this purging process: Removing inefficiency at a sub-system level means the primary system becomes more efficient.

Yes, there are winners and losers. But the great thing is that in a liquid, lots-of-opportunity economic system, the loser of today can be tomorrow’s winner.

So, in North Korea the government makes economic decisions from outside the economic system, decisions that are based on the needs and desires of the government system itself. The North Korean economy is terrible because the government system does two things wrong: First, it drains capital from the economic system using it as a source of funding. Second, inefficiency in internal systems is tolerated because there is little incentive for anyone “on the ground” to make those systems more efficient. Workers plod through the day without producing more than what is absolutely necessary because there is no reward for doing more than that. Management operates in the same way. The economy stinks. There is little freedom. Life is a struggle. And here’s the bottom-line regarding the inefficiency of a state controlled economy (and for that matter, of many governments and large Bureaucracies): There is minimum cleansing action within the system processes. Inefficiency dominates because there is little or no punishment for inefficiency or reward for efficiency.

This has to be said and it’s a good time to say it: Unless the government seizes control of the production apparatus, the government system’s revenue for operation comes 100% from private sector system production and profits. It’s never the other way around (although government spokespeople will try like Hell to make it seem that way). If the private sector is brought to its knees, the entire country – including the government – will be on its knees too…. and typically this is the point where nationalization of production apparatus occurs.

Again, high system efficiency for any primary system is the result of a multitude of spontaneous, small “system improvements”made within the system itself – for the benefit of that system – not the result of an outside controlling mechanism which has limited interest in promoting internal productivity (as well as non-related motives that do nothing but drain capital from the system).

Haranguing on salient points in my usual way, remember that in a given country there is an economic primary system and there is a government primary system. In a democratic capitalist society the two are more or less separate. In a socialist society they are combined.

Documentation. If you’ve read my book, Work the System: The Simple Mechanics of Making More and Working Less, you know how I feel about documentation: To achieve a high degree of efficiency in a given system, documentation is mandatory. To illustrate, the success of the United States in providing maximum freedom and opportunity to citizenry is ultimately the result of founding documentation put together way back in the late 1700’s. In contrast, the documentation of a socialist state like North Korea is ephemeral, morphing dramatically at leadership’s whim – and often within the context of the latest military coup. This is it: Solid documentation equals calm efficiency while bad or non-existent documentation equals chaos. Boring but true.

Brief Kudos for rich people in capitalistic societies. They don’t sit around their mansions counting gold coins. They invest in businesses, luxury goods, travel, etc. Money is not static; It flows from these people on down the line. Their investing and spending produces jobs. I’ve been on both sides of the equation and this I know for sure: Discouraging wealthy people from investing and hiring through excessive taxation and over-regulation is a bad thing. So, here, I gently and respectfully correct my socialist friends: In a capitalist society, wealthy people are not the enemy.

(Are your ideological emotions beginning to surge? If so, back off and remember that my analysis is based on dispassionate mechanics and is not being recited word-for-word off some left or right wing menu.Remember that I look at the world as a collection of systems, any one of which is efficient, inefficient or somewhere in between. And I work hard to see the world as it is – both the seamy and the pristine – and not the way I think it should be.)

The government primary system: Supporting or fighting the economic system? In an individual country, government and private sector systems are separate, combined, in support of each other, in conflict with each other or somewhere in the middle, and in this distinction the waters get muddied. But this is certain: A free-market capitalist democracy can slide into some degree of command-and-control socialism when the government system becomes too powerful, impinging on the private sector economic system, making parts of it wards of the state. But the good news is that it goes the other way too, with dozens of new capitalist democracies springing out of socialism/totalitarianism over the last thirty years, most recently in Eastern Europe and South America. Economically, Russia and China have also shifted in this direction (although they certainly can’t be called democracies). Economic and personal freedom is the strong trend. See graph below.

Interestingly though, in the United States, as government attempts to assume command-and-control over large swaths of the private sector (the short list includes auto manufacturing, banking, chunks of Wall Street, health care and most recently mass transit), the slippage toward socialism is in contrast to the rest of the world’s steady move toward capitalism and economic freedom.

Capitalistic or socialistic, most all economic failures trace back to government interference in the marketplace: It’s the encroachment of one system upon another. In the U.S financial world, have there been greedy CEO’s and wrongdoing in the private sector? Yes, of course – that’s nothing new – but by far the largest cause of inefficiency has been by government system’s over-reach into regulation, taxation and general manipulation which has directly or indirectly made market systems everywhere inefficient and unpredictable and open to abuse from within and from without. And when this happens, investors and business owners get leery, less apt to spend and hire (see my post, Deflation, Inflation and the The Beast I Won’t Buy.)

And, back to the corruption issue: Corruption within democratic states pales in comparison to the hyper-corruption of command-and-control socialistic states.

Should governments regulate while providing services such as education, road construction and maintenance, and safety-net health care?Yes, of course! Let’s be pragmatic here. We need governmental management of courts, law enforcement, national security, infrastructure and a host of other services that can only be realistically provided by government entities. But it’s a matter of degree: Minimize it and keep it out of my face.

Economic System Management in the real world. From a systems mindset, non-ideological perspective, this is a simple thing. Natural systems manage themselves (the tree in the forest, for example). Complex human-built systems must be managed both for efficiency and to insure that system-purpose is continually fulfilled.

Can this be argued? Especially now, The United States economy is being overseen by professional politicians who have little management experience in the private sector and who – in the current administration – endeavor to replace the “old” system with a new system in which, interestingly, the government would manage as many facets of everyday life as possible. Whoa.

Here I wallow further into the swamp with my prediction for the United States: Because of ever-worsening government and economic system dysfunction caused by leadership’s lack of management experience, little understanding of fundamental economics, lack of empathy for the private sector and attempts to shift the underlying purpose of our governmental systems, Democrats will lose majorities in both houses of Congress in the elections of 2010. Then, in 2012, Barack Obama will be voted out in favor of an efficient executive who has private sector expertise and who has solid belief in the traditional purposes of our primary systems of government and economy. This individual won’t be a senator. He or she will be a state governor – someone who has had serious executive/managing experience.

The new leadership approach will be to “tweak” existing systems, not overwhelm or replace them.

And while I’m making the fur fly (despite my repeated assertions that my conclusions are based on systems thinking), here’s my take on a couple of timely issues in the United States:

Health care reform: If the current system is working fine for 85% of the population – and is one of the best health-delivery systems in the world – from a systems perspective does it make sense to turn it upside down? No. It has its inefficiencies but it’s a system that’s working well the great majority of the time. I say tweak it. The tweaks? Since cost is the problem, increase effiency and therefore lower cost by removing encroaching government system restrictions such as mandated benefits, allow packaging of plans for businesses, do tort reform and bottom line, allow competition in order to perfect insurance products and to reduce their price…for example (and this is huge): Last week , our insurance agent requested bids for 2010 coverage for our 30 employees. She received bids from just five Oregon insurace companies because we can’t cross state lines to get coverage. The new insurance company we selected will raise prices 3.5% over what we paid last year. What if our agent could have received bids from insurance companies in all 50 states? Wow! What would the prices have been then? Get government out of the health care system, not in it deeper. (It’s interesting that when government causes a problem it will then offer more of itself as the solution to the problem it originally created. Arrgh.) For those who are uninsurable because of serious congenital problems, the governemnt would handle it. Regarding the new streamlined approach, keep your systems thinking hat on and realize this: The system tweaking will be easy, fast and no cost because it will be more about dropping restrictions than about devising a huge, cumbersome and awesomely inefficient bureaucratic system (per 2,000+ page legislative bills that lawmakers don’t have time to read). These simple moves, with appropirate regulatory oversight, would go a long, long way to quickly fixing things.

Cap and Trade: Of course we must be good stewards of the earth. Everyone agrees on that. But creating an enormous burden of taxes and regulation – by using scare tactics – will ultimately backfire with the majority of the population. And, are “more taxes and regulation” the default solution to everything? Anyway, first prove without a doubt that global warming is man-made before yet again hammering away at the private sector system. (As an aside, there is mounting evidence that the global warming scare may go down in history in the same category as the Salem Witch Trials). In any context, there is nothing more burdensome than a pointless, unnecessary system and this may be the ultimate example of that.

The beautiful thing about a democratic free market economic country (or about a well assembled large corporation) is that when things aren’t going so well, the system itself via excellent founding documentation, allows change not just within the mechanism, but at the very top levels of management.

And North Korea’s socialized, command-and-control economic and government systems? There will be no fundamental management change coming from within because the existing government system won’t allow it. The country is and will continue to be an inefficient mess that is operated for the benefit of the government rather than the people. Only internal revolution or war will change North Korea’s systems to something more efficient. Again, lovely.

And me? I’m registered as an independent, having swum back and forth in the waters of both liberalism and conservatism. As the owner of a small business owner for the last 25 years, it’s the freedom-thing and the personal responsibility-thing for me and so I find myself some kind of hybrid libertarian/conservative, skeptical of government’s ability to manage things well. What I have accumulated in life is of my own doing, and after spending time deep in some non-democratic third world countries, I appreciate the ladder that is available to me in the free world. In too many places individual hard work and innovation takes one nowhere.

And what about the less fortunate, those at the bottom rungs of the socio-economic ladder? Yes, of course those truly in need must be cared for by the rest of us but as Dennis Miller said, and I paraphrase: “it’s my responsibility to take care of the helpless, not the clueless. And lately there seems to be a lot more clueless.” Can a dependant class be cultivated into a numbnuts voting block by relentless handouts?

You tell me.

Finally, and in relation to the above thoughts on the socio-economic ladder, this needs to be said: In a democratic capitalistic society like the United States, at any given time, there is a percentage of the population residing at the bottom rungs. It’s important to remember that in a free market economy there are constant up and down movements on the ladder. Those on the bottom rungs today are often on the top rungs tomorrow, and vice-versa. It’s fluid. In a free market society, one has the opportunity to climb and descend based on one’s own actions. In socialist and semi-socialist state systems, that upward movement is difficult – in the worst cases, literally a caste system. In North Korea, for example, 99% of the population is stuck at the bottom rung with no chance of climbing up and out. And anyway, there just isn’t that much ladder to climb.

What works in the real world is the equal opportunity that the capitalist free market system offers, not the socialists’ utopian promise of equal-outcome. On this planet, it just doesn’t work.

Call me a capitalist.

(And, one more time: I’ve carefully explained my conclusions based on the systems mindset and not ideology. If you disagree with my analysis, I challenge you to respond on that basis: Poke holes in the systems mindset reasoning and avoid straight ideology rebukes. As I mentioned at the beginning, I will respond to feedback in the December 15th post.)

I am an avowed capitalist – been an entrepreneur since 1979 and never had a “real” job. I agree completely with your approach to systems in a business.

However for this post I take issue with one of your premises. I disagree that the US is a prime example of a free market economy. It may be the best example that we have – certainly the biggest. But if you read “Wealth & Democracy” by Kevin Philips he looks at the history of wealth in the US since the colonial days and makes a convincing argument that most of the people who got rich over our history did so because they profited from some action or inaction by the government.

This includes people who got wealthy in the arms or cotton business just as America was going to war, those who build railroads on land given by the government to expand transportation to the west and many other examples.

Thanks John. Despite the robber-barrons, I’m sure that everyone who got rich back then didn’t screwed someone in the process. But never mind that. I will use this response to say again that in accumulating comments here, I hope to not see a lot of the standard ideological he-said/she-said. It’s my bet that on my December 15th post, as I review all the comments and summarize a response, a main conjecture of my reply to those comments will be “how easy it is to overlook the mechanical systems around us that are creating bad results, as we instead spend enormous time and energy trying to fix the resultant bad results (or just complaining about them).”

Great post, Sam. I do agree with John Seiffer that we don’t have a true Free Market in the US, though. Yet, I suppose we are one of the “freer” markets in the world. One of the issues that frustrates me a bit is that so many in the media are proclaiming that it was too little regulation and government control that has lead to our financial crisis, but the evidence seems very clear to me that government regulation and control contributed significantly to the downturn (i.e. pressuring Fannie, Freddie, and FHA to loosen underwriting guidelines to promote imprudent home ownership goals under the Community Reinvestment Act), and that often greater government spending and bureaucracy do little to remedy abuses (i.e. after Enron & Worldcom the SEC enforcement budget increased exponentially, yet despite repeated whistelblowing by Harry Markopolos, the SEC failed to do anything about Madoff’s Ponzi Scheme until Madoff himself confessed to the crime). Sure, there are abuses of capitalism, but often personal responsibility and prudence prevents harm. For example, what reasonable person should expect that Madoff could have really given them the exact same return on investment quarter after quarter? What prudent person would invest most of their wealth in one company (like many people who were financially ruined by Enron and Worldcom had done).

I thought the chart that you included that shows the percentage of cabinet appointments who have private sector experience by president was especially interesting. It looks like Obama has only appointed about 8% with private sector experience, and the next lowest was more than 3 times as many. When the private sector is responsible for job and wealth creation, and the president isn’t utilizing advisors who have experience in these areas I consider that to be an extreme system failure, and it doesn’t surprise me that, in my opinion, most of the “fixes” coming out of Washington seem to exacerbate the problem rather than remedy it, thus prolonging the recession (i.e. creating uncertainty about new possible compliance and costs associated with a major healthcare overhaul; printing money and spending it on so-called Stimulus which has, in reality, been indiscriminate spending rather than investment in things that will lead to future returns; providing tax incentives where the government decides to reward certain groups and behaviors rather than providing long-term general tax relief that encourages job creation; dramatic increases in the national deficit and debt which create an interest burden and erode the value of the dollar; and promises to increase taxes on job creators – what you tax more of you get less of).

As I have said in emails to you – I really appreciate what you do and you have helped me become more effective in both my personal and professional life.

That said, you need to fact check your blog before you post, rather than find incorrect facts and charts that fit your conclusion. I do not have time to fact check your entire post, but I was familiar with the private sector experience chart – it has been proven false and extremely misleading. In fact, only a few of the people in Obama’s cabinet lack private sector experience! His public sector/private sector balance is quite consistent with past cabinets. A quick search on the internet, and 5 minutes researching peoples’ biographies would help you come to that conclusion. But the following link summarizes the inaccuracies, including the chart’s creators regretting that he published the chart. The article was written by Poltifact.com, which is non-partisan, and fact checks Obama more than anyone.

Aaron: I want to use your comments to set the tone for additional comments from other readers in order to avoid the standard finger pointing to left and right wing blogs and resources. It can go on forever. However, if you can punch holes in my systems-reasoning, please feel free to do so.

You may be correct about the chart (although, despite what I said above, to balance things here, you site what some consider a seriously leftest group of editors from a serious leftest newspaper when you use The St. Petersburg Times politifact as you source). Glenn Beck used the chart? I didn’t know that but if true I am not surprised. (Are you saying that’s a bad thing?) Other than that, you have not disputed the rest of my statements or my conclusions per the “systems mindset” thread that I described. Agree or disagree with my positions, I ask that incoming comments address this systems mindset aspect of the post, rather than to just argue politics. There’s too much of that already.

OK. Linda and I did an investigation of the chart and ended up at a decidedly left-leaning site to find exact details of each cabinet member. Per the site, it is correct that many have private sector experience if one counts time spent in law, education, lobbying, prior government experience, government funded research and even — in Joe Biden’s case — what a parent did. “Law” was the most sited example of private sector experience.

Hmmmm.

It’s almost as if the researcher who put together the listing was clueless as to what working in the private sector really is.

Our notion of “private sector (management) experience” is someone who has had responsibility for showing a profit and managing people to that effect. In fact, with the above definition, we find only one cabinet member with true private sector experience (Steven Chu who ran a Dairy Queen and a radio station).

Here’s the kicker, of course: President Obama himself has zero experience running any firm in the private sector unless one counts community organizing, working as an attorney or teaching at a law school.

The creater of the list, Michael Cembalest is quoted as saying (on the Politifact site itself), “what I was really trying to get at was some kind of completely 100% subjective assessment of whether or not a person had had enough control of payroll, dealing with shareholders, hiring, firing, and risk-taking that he or she would be in a position to have had a meaningful seat at the table when the issue being discussed is job creation.”

Find the detailed list below. I’ve also added a second link to a Forbes article that Mr. Cembalest wrote on 11/24/09.

The “facts” on politifact are no more accurate than the chart that Sam included. Politifact states that there are 9 cabinet positions. Yet, there are really 16 (including the VP). Here’s a link to a white house web page that describes the positions: http://www.whitehouse.gov/administration/cabinet

I don’t have time to fact check the backgrounds of all of them, so your point is well taken that there could be errors in the data – but perhaps the source you are citing to refute the chart needs a little fact checking itself?

Through the centralization and concentration of power in the federal government which really started taking over over a half century ago (and now accelerating like a rocket ship), it’s hard to describe our economy as a “free market” economy. Freer than many, but that’s not saying a lot.

Regulations are needed, but what we have today in most industries is over-regulation which in itself causes distortions of significant ramifications and added costs to a wide range of products and services.

for example, everyone, I think, agrees that conservation and wise stewardship of our resources is a good thing. But when we introduce big government AND big business to the party.. we come up with things like the current “climategate” fraud. Extremism for political reasons, combined with “inside” financial reasons the scientists AND people like Gore start distorting and “massaging” the facts in order to secure public money.. in exchange for what?

Clearly, Thomas Jefferson wouldld not approve of the gigantic, centralized government we have today. he would absolutely decry the manner in which our government’s financial affairs have been mismanaged.

Socialism vs. Capitalism? I’ll take Capitalism every time. Here is a thought provoking explanation of free enterprise and Capitalism-from a film created decades ago. Back then, they actually created jobs and there was immense opportunities for those willing to work. This clip is an excellent primer – Capitalism reinforces freedom, liberty, and opportunity for every individual. We must reject collectivism and government totalitarianism. We must promote personal freedom and reward excellence through a competitive, free enterprise system. We all benefit- lower prices, greater selection, more innovation, and a much higher standard of living. Hope the link is visible here:

At the moment in the West, governments have responsibility for the economy, so we expect economic policies and practices to mirror the political ideology of each democratically-elected government. But you are advocating that the two systems—the government and the economy—be operated separately. So my question should have been: How would you ensure independence from political ideologies and agendas when recruiting a CEO to run the economy as a business? There would be a risk that the CEO would not be able to remain impartial, especially in crises and controversies, and would consciously or unconsciously allow his/her political preferences to influence the way the economy was run.

CEOs and business owners normally do not have to detach their political views from their views about how to run their companies. If they do not like the way the elected government is running the economy, they have a number of politically-oriented options available to them. For instance, they can agitate/lobby for reform, make donations to the election campaigns of their preferred political party, vote for their preferred party at the next election, or comply. But even if they chose the latter option, they would not be relinquishing their political opposition, just holding it in check.

However, if your suggestion of two separate systems for government and economy were to be realized, there would need to be a mechanism, an over-sighting system, for ensuring the country’s economic CEO was truly independent of political bias. After all, we would expect significant differences, in attitude and action, between a Democrat/Labor-leaning economic CEO and a Republican/Liberal-leaning one.

Thanks, Helen: Like most things like this, It’s a matter of degree and so of course there are subjective grey areas. The economy can never be completely separate from the government but it can be at a distance. The government’s part of management (the cabinet, for example, here in the U.S) should have representatives FROM within the economy, NOT jsut professional politicians, most of them attorneys…we’ve got enough of these folks in our legislative branches! So, it’s about of providing private sector representation in the government’s management councils that makes policies for the private sector.

It IS about systems and this goes back to keeping the system purposes, both for government and the private sector, as pure as possible while encouraging efficiency. Combining these systems in the real world results in countries like North Korea, Cuba and Iran. The systems there muddy each other with the private sector system victimized by the government system as I described in the post. (When did the private sector ever win out when these two entities were put head to head?)

Regarding special interests, that area will have to be watched….just as it is supposed to be watched now.

I saw a lecture by Dr. Zimbardo of Stanford fame several years ago. His lecture was on the nature of evil. In sum, evil leaders seek power over others. Their method for achieving this power is to present a goal so noble that everyone can get behind it and so audacious that no one can provide a competing goal. Because the goal is greater than any one individual, the individual is sacrificed on the altar of achieving this goal. Note the uniformity of followers of Nazism, Communist Mao, and on and on. They all wear a uniform and perhaps the most striking example, KKK members where a hood to hide their identity. Once the individual has willingly forsaken their individuality, or had it forcibly taken from them, the evil leader is in the driver seat. No one can stand up to him or her and they enjoy the added power associated with a following that now has no choice but to follow his or her lead.

This is the nature of evil: celebrate the “good of the whole” while squashing the individual. This is what we see from both parties in Washington. Whether it is war on a distant people or war on healthcare, they seek to empower themselves at the expense of the individual. Bad things happen to those that allow such concentration of power to continue.
–Spencer

Whew, what a post. It took a bit to get through but I was both educated and encouraged with your systems mindset toward capitalism. I agree whole heartedly and having read your book see where these points fit in our government. We need some serious systems maintenance as a nation. I won’t profess to know anymore detail than the basics when it comes to politics but I appreciate your mindset and most readily look to apply it in my own capitalistic objectives. One key thing I took from this post is that you made sure to express that we need to have balance. The government can be involved, but to what degree…always take a systems look at how much is enough and regulate and tweak from there. Good stuff!

Yes, Robert. That was a long one. I couldn’t do it in two or three pieces because it all goes together. Now that it’s done, I feel, “well, I had to make those observations and now that’s out of the way!” It IS a matter of balance and the pendulum, as they say, has swung too far with one system encroaching on the other. The key is the system’s vantage point and to come from there rather than from a pre-conceived ideological stance. Once I “got” the mindset, the move from being a liberal/progressive position to a libertarian/conservative position was fast and without hesitation. One more thing: You mentioned we need system maintenance. Exactly, but only on the heels of some serious tweaking. Thanks much for your thoughts.

“…there is an “error of omission” in the essay: Communication system. I see this as very important to the points of the essay. At the micro-level, and in the context of the boot camp, one of peoples biggest issues, is ” how do i get my people on board with systems thinking,”

” In your essay, you illuminate that the U.S. is considered a free market. This is a farce. The U.S. is a Hybrid, between Socialism and pure capitalism.”

“So if the U.S. is not the leading example of Free Market Country, who is: Indonesia, Vietnam, and other so called 3rd world countries. We can find the true free market countries by the label on our Nikes. These countries have the least regulation on companies, the least taxation, the least laws restricting free market.”

“Insurance companies, a bureaucracy as they administer the medical system, not act within it ( like a doctor), are no different than a governing body, or a national government. ”

“The (insurance)system is run by a governing body, primarily guided by the insurance companies, that is grossly inefficient because they work like North Korean examples in the document, with set prices, and taxation. There is almost no free market in the current medical system.”

“And on this (insurance) issue, because i don’t have any great ideas of how specifically to make it better, i says screw it, go for it Obama, maybe your idea is better than what is here, because currently this medical system does not server me at all. “

(Note. Helen Harrison, from Austrailia, sent me a long email. Here are excerpts)

“According to systems theory, a system is always working towards balance, or homeostasis.

A totally and permanently closed system is pathological. You offer North Korea, Cuba, and Iran as examples. On a lesser scale, a religious cult is another obvious example. You have already described the corrosive effect on humans living in such a system.

A totally and permanently open system is just as pathological. We might think of historical periods when anarchy reigned as examples: civil wars, rebellions and revolutions, acts of genocide, world wars, and military coups. Chaos overturns existing rules and routines and uncertainty prevails, as warring factions battle for supremacy. This sort of pathology can drag on for years, even decades.

At a more personal level, procrastination is another example of a perennially-open system. ”

“Historically, human societies, democracies included, have also striven for a balance between self-interest (individualism) and other-interest (collectivism). Culturally and politically, communist regimes are extreme forms of collectivism, where the individual’s needs and rights are subsumed by the state for the apparent collective good. In contrast, the corporate greed, conspicuous consumption, and aggressive competitiveness of capitalist societies are often held up as examples of extreme individualism.”

“In Australia, the Liberal Party is a generally more (economically) conservative party which can be likened to the Daddy Party, and the Labor Party is a generally more (socially) progressive party which can be likened to the Mummy Party.”

“ Another dimension on which a democracy must achieve balance is between the public and private sectors. The private sector creates jobs and makes money through all manner of enterprise. But this sector is no longer exclusively and traditionally capitalist (free enterprise and competition). So-called social or ethical enterprises are a growth industry and their goal is to make money in a sustainable and economically responsible way, with an obligation to nurture communities and the environment in the process. ”

“It is probably not possible to separate the economy (the private sector) and the government (the public sector) as two relatively autonomous systems, if you define “the purpose of any country’s economic system [as being] to distribute goods and services”. This definition is so broad that it necessarily includes all the activities of both sectors. “

DEBATE WITHOUT ANGER
We were told never to talk politics or religion, as someone’s going to get angry and throw a punch. It is safer to avoid conflict. Here is another way. Never make a statement of fact. Instead, ask a question so the opponent feels respected, and then listen. They must give predictable answers, putting their position so far out on a limb it falls by its own weight. The only way to do this, however, is to know what you are talking about, what you believe, what to ask and predict. To argue with an elitist who believes life only works when the government designs it, or the elitists few who want to rule the non-elite many, find the roots. If you go toe-to-toe with a know-it-all, without knowing your stuff, you will be embarrassed or trade blows. Know the roots of every argument. Understand what conservatives, libertarians and Marxists believe. It is easier than you think, because the root differences are simple.

1. Global warming. We are contributing, and if we want a comfortable/survivalable environment, we need to manage it better. (But please, NOT CO2 sequestration, take out 1 ton of 90% carbon, put back 3 tons of 33% carbon, 66 % oxygen!!!, the maths don’t work) Systems thinking should tell you this. We are making measurable modifications to the atmosphere, that correspond with known conditions in the past, and we can assume that the planet will “simply cope”, but we can’t assume that we will survive the coping process.

2. The assumption that the improvement of sub systems improves the primary system ignores the problem of local vs global minima/maxima.

Just because I perfect a system that makes me 10x better off, and causes no direct harm to those who are directly connected to me (local feedback loops) doesn’t mean it’s good for every one.

Toxic waste dumping is an obvious example. I’m clean, my neighbours are clean, I make a pile of cash, and thousands of people in some remote rural town get cancer.

The reward/feedback systems you envisage as improving systems are limited by human capability. Lifespan, ability to determine effects (try “black swan” or “outside context events”, interest in the effects of ones actions on others, desire for personal benefit.

Unfortunately, I can’t see anything better at managing the processes short of an “actively involved deity”

Roger. Perhaps the world is warming overall (although there is evidence that has not been the case over the last ten years). Also, regarding the “hockey stick” conclusion re global warming, there is significant evidence of manipulation of scientific data. So, I don’t fully accept your conclusion on where global warming originates.

I more or less agree with your second premise. Human engineered systems are all flawed to some degree and must be managed. That, simply, is our lot. The question is, how do we go about making these adjustments without gumming the works?

I’ll add this: Most of the responses to the post have gone to a “black and white” commentary. To some degree, ALL of this is subjective. But when we get carried away with subjectivity, then we’re getting away from real-time/real-life mechanics. My overall message is to suggest that we add pragmatic objectivity in an effort to reduce subjectivity (which too often deviates from the ultimate goal of the primary system).

As a scientist I like systems analysis and am also attracted to the deconstructionalist approach. However, you should be aware that optimising subsystems does not always optimise the overall system. For example, a salmon swimming upstream to spawn and then die is a pretty inefficient system for that particular salmon, but is part of a relatively efficient overall life-cycle system for the species. So when you say:

“It’s the visceral certainty that life is not an unpredictable,
swirling sea of sights, sounds, people and events, but instead
a collection of logical independent systems, 99.9% of which
work just fine.”

I actually don’t think these systems are independent but often very interdependent. Optimising one system can have deleterious effects on others or the whole. An important corollary of this observation is that self-healing subsystems can continue to “optimise themselves” to the point of extinction. Take a virus for example – it might mutate (tweak) to improve its viability, contagiousness, resistance to antibodies etc. to the point where it will infect and eventually kill all available hosts, thus ensuring its own ultimate demise.

You have to take care when deconstructing complex interdependent systems like economies to avoid this trap. That’s why even the most free market economies have governments that intervene when so-called market failures in subsystems threaten to derail the optimisation of the whole system.

Thanks Paul. In my book there is a quite pointed explanation about how getting too wrapped up in the “holistic” approach, here in the real world, can be paralyzing for the individual who needs to know “where do I start to fix things?” This is not to ignore the holistic nature of things. My argument is not for a holistic solution, but for a holistic result. Isolating and then fixing components (sub-systems) of a system, one by one, is the sure way to get things done in the hard and cold reality we live in day-to-day. It’s a pragmatic and simple approach; not oen that is theoretical and complex. Also, in the post and in the book I say that “each component of the primary system must be geared toward the success of the main goal of the primary system.” So, the dying salmon has released eggs and therefore has contributed to the overall goal which is to sustain the species. That’s a good thing. So, the question should always be asked before proceeding with adjustment of a sub-system, “what exactly is the goal of the primary system?” Then, each sub-system is adjusted to point toward that overall goal.

I also did not suggest the removal of the government as a controlling and regulating entity. In fact, I stated quite the opposite. We need the government. My point was that encroachment of a foreign system on a healthy system, for the foreign system’s benefit, is the equivalent of a parasite/host relationship (North Korea’s governemnt/economic system being the prime example). However, if the primary system incorporates a subsystem that is NOT hostile to the primary system but in fact serves it, that’s a good thing.

This is a very interesting indeed. I liked you article, but I disagree with it.

You end your article with:

“What works in the real world is the equal opportunity that the capitalist free market system offers, not the socialists’ utopian promise of equal-outcome. On this planet, it just doesn’t work.

Call me a capitalist.”

Since you are a systems person all the way, I wonder what is your take on the Zeitgeist Project. This is a movement to transform the all “Socialism vs. Capitalism” upside down from a true systematic view of the world. I’m really interested in what you have to say in appreciation of it.

Rui: Remember, I am approaching this from a “systems” standpoint, not an emotional one. I find this on Wiki: “The Zeitgeist Project is about hope. It is about creating foresight and encouraging arete (the ancient Greek notion of striving to reach our potential). This historic initiative seeks to bring together under one roof a society’s most influential leaders, thinkers, and artists so that we do not live with regret.” I also went to the website, http://www.zeitgeistproject.org. Nice music; It’s playing as I write this, but this music, like the quite flowing, broad and glowing description of the movement suggests strongly to me this is an emotional effort and so it grates against my mechanical systems leanings. What is the message from this organization, in a nutshell? Maybe, “Let’s identify some leaders and leave the decisions up to them?” I see Bono and Nelson Mandela flash by in one of the windows. Probably Al Gore is in there somewhere. I could be wrong. (I’m just saying.) So, WHO decides whom to include in this “intelligentsia”? WHO decides if these are the people who should disseminate to the rest of us what is the most effective approach to life? At the top of the site is this definition of Zeitgeist: “The general moral, intellectual, and cultural climate of an era that is established by the intelligentsia.” Intelligentsia? It seems to boil down to anointed elites dictating to the masses, doesn’t it? From a systems perspective, how does this compute? Is this the system: “These particular people will decide what is going to happen next?” Per my post, I prefer a system where the power is disseminated by individuals and not by an organization or individual. Any anyway, the “real-world” problem that the Zeitgeist effort poses is this: What if there is dissention from the dictates of these intelligentsia? My observation is that the masses are, right now, dissenting (cap and trade, global warming, taxing the wealthy, etc.) Should dissenters be punished or stopped somehow? On the surface, unless I am missing something, this is scary and the movement is not without historical precedent — precedent that didn’t turn out so well for the masses.

There’s one issue however, in this designing of the system, that’s often forgotten: externalities. You are right that in a free capitalistic system without monopolistic problems (a big challenge on its own), the system will make sure the most efficient ways of capitalizing stuff will win. However, one thing remains unsolved: the fact that there’s only one earth. If there are unlimited resources and unlimited possibilities of polluting, there wouldn’t be a problem. However, that’s not the case, obviously.

So there has to be something in place which limits what the system does. If it’s a complete free system, it’s like an ant colony eating up all forests, until there’s nothing left to eat. Then the ants die. The system would work if there would be a market price for clean air, clean water etc. Those prices would be sky high, as there’s indeed a very limited amount of it. However, nobody “owns” his share of clean air, water and land. It’s nobody’s. So if I go out there, dig up some mineral, burn and process it, pollute and then sell the end product, not dealing with the waste, I am profiting while dumping the real costs on someone else (in fact on everybody else). That is the problem.

Also, the same problem lies in the issue of the trickle down theory. If, and only if there are unlimited resources, it wouldn’t be so bad that the rich get richer. Then yes, their investments will trickle down and everybody can grow indefinitely. However, the fact is that we’re with 6 billion on one planet. A limited resource. So currently the 1% richest people own like 25% of all wealth (including those limited resources). If that inequality grows, at some point a very small minority own almost everything. So yes, to some extent there’s an amount of “wealth” trickling down. However, at the same time it’s about a restricted quantity being shared by all people. And that share is more and more being inequally shared. This mechanism is probably hard to imagine, because the earth seems so huge for a mere mortal human being as we are. However, imagine being on a small island with 100 persons. At some point 1 person owns 25% of the land. With that land he is able to get richer faster then the poor people. Buying more land. Etc.

Anyway, I’m in no way advocating some communistic system. I’m a businessmen myself, running my own business. However, we have to account for those externatilities much, much better then we’re currently doing. As it is now, it’s a big pile of sweets and all for oneself, grab what you want, leaving a mess behind. But nobody thinks about the fact that at some point that pile is gone and we’re left with the big mess

Last, I will forgive you for your opinion about the climate change, since apparently in the US and on the internet there’s a lot of misinformation being spread. But it is real and for a large part caused by humans. There’s hardly disagreement among scientists. The disagreements or uncertanties that remain among scientists are constantly fought out in peer-reviewed journals, open for everybody to read about. It’s only among some politicians, stakeholders and others that the whole discussion about real or not real is happening. So unless you believe in some big world wide conspiracy between almost all scientists and governments, you can’t believe it’s not true. The “evidence” that there has been no warming in the last decade only exists on the internet and in the minds of skeptics. All big scientific institutions have concluded that the last decade is warmer then any previous one in recent history. But let’s focus on the main point of your article about capitalism, as that is something we are able to discuss rationally here.

Mathew. There were, of course, many issues that I didn’t discuss. The post was way to long…3,600 words when I try to keep them under 1,000. Of course we need to take care of our earth. That goes without saying. I could write 10,000 words as a summary post on that issue (and no one wants to slog through that).

Think systems here, not ideology.

Perhaps too few people own the wealth. But that applies especially to tyrannical states. In those regimes the ratio is typically 1% own 99% of the wealth. In a free economy, the wealth is spread far and wide with most people having a great life compared to a closed state – those are the statistics…the mechanics. Try Pakistan or Burma, Bangladesh, Cuba or North Korea. Of course things are not perfect in a free state and we must do what we can to avoid a few people from hoarding wealth or destroying the ecology. It’s a matter of degree.

Rich people don’t sit home counting the gold coins. Money flows. Yes, trickles down. One other thing re trickle-down. The stats are not exactly correct but they are close. In the U.S., 5% of the population pays something like 80% of the total taxes and, in America, more than 50% of the population pays no taxes at all. Look at the stats.

So, things are relative. I am not going to disparage free systems because things are not perfect. A free economy is way more perfect (and fair) than a closed economy if you look at the numbers.

Trickle down? Think of the enormous blood and treasure that has “trickled down” from the U.S. to poor countries over the last century. Another thing, the world is mostly free because of the above blood and treasure. Trickle down beats the alternative which can only be a police state.

I simply don’t agree with your statement “As it is now, it’s a big pile of sweets and all for oneself, grab what you want, leaving a mess behind.” I won’t even start on this except to say that I think that’s a bloated generalization (and that my own bloated generalization is exactly the opposite).

Thank you for forgiving me my opinion on climate change, but there is hardly agreement in either the scientific or non-scientific population on what caused it or whether it is “normal” or not. Anyway, speaking realistically, the very real immediate threat is an EMP or on-the-ground nuclear detonation from a rogue state, not that the temperature of the earth may go up two degrees by 2050. Why is this not a concern by those who profess to be “green”? I recommend the book. One Second After by William Forstchen.

Maybe my point was not very clear: in no way did I mean to compare a capitalistic system with some sort of non-free communist system and say that the capitalistic system is not better. I understand that that was the main comparison of your post. The only thing I wanted to say is that there are limits/boundaries of a completely unregulated system. And that’s those externatilities and limited resources I talked about. Clean air/water etc. You can’t let the markets go completely free and expect the market to solve pollution problems or make sure the oceans aren’t fished empty. The only interest of the market is to make money in the short term. And as long as there’s no price/cost on clean air/water, the market will never take care of our environment.

If you are thinking in a systems’ approach, you should understand this problem. I am in no way talking ideology here. And then you also understand that someone (probably governments) should somehow intervene. By putting a price on pollution and limited resources. So fine if you fill up your car with petrol and burn it, but you’ll also have to pay for the waste afterwards. You buy a new plastic product, then you have to pay the price for the product including the cost of disposing it in a good way. So I am still talking about a completely free system here! It’s only that the costs of waste and pollution should be included. In practice, that would probably mean that gas gets four times as expensive, that many plastic throw-away products would triple in price, etc. But that would be no problem, since the market would solve it because people would just go buy the cheaper ecological products.

Is this so difficult to understand?

Last about the climate change: you basically say all the big scientific institutions are lying. Well I guess it’s your right to believe that.

I was clear that there needs to be government and that there are problems that need to be addressed. I didn’t say “all the big institutions are lying,” although, ironically, the very largest one — the one Al Gore has used as the fundamental source of his information, is in the midst of a cover-up scandal. I stated that there is not a consensus on global warming, not that everyone is lying

It is interesting that you assume I don’t want government at all and that I don’t care about the environment because I don’t swallow everything on the green menu.

This thread is over as it is turning into an ideological back and forth. My points stand as written.

“Isolating and then fixing components (sub-systems)
of a system, one by one, is the sure way to get things
done in the hard and cold reality we live in day-to-day.”

This seems to be a central thesis with your systems approach, and I agree that this would work quite nicely for most of the time, except for those case where sub-system is optimisation is negatively correlated with the optimum for the holistic system. Your counter goes a long way to addressing this concern:

“So, the question should always be asked before
proceeding with adjustment of a sub-system,
“what exactly is the goal of the primary system?”
Then, each sub-system is adjusted to point toward
that overall goal.”

But one thing stills nags me about this approach, and that’s the case of highly complex and emergent systems. In these cases it may be impossible to understand the interdependency of sub-systems with enough confidence to optimise a sub-system such that it would improve the holistic system. Examples such as human molecular biology and the international economy spring to mind. There a whole branch of complex and non-linear systems science trying to address this, with limited success. That’s why human biology is such an empirical science — try something see what happens — because the biochemical sub-systems, and their interactions, are complex beyond our comprehension. Unfortunately with some systems, like the economy and the environment, such experimental approaches may be disastrous because, of course, we only have one Earth to experiment with.

Now I’m not saying to do nothing and you’re quite right that a fully holistic approach leads to either paralysis or hippie, crystal-ball solutions — neither of which is appealing. Most times the systems approach is the best option we have. All I’m warning of is the potential for overconfidence and hubris that can come from assuming we understand and control a complex system merely because we understand and control its sub-systems (that we may be aware of).

I agree with everything you say here, Paul. Regarding complex systems, yes one can’t go willy-nilly into subsystems without analyzing the entire primary system and making fundamental decisions about desired outcome. We are facing challenges nationally and internationally where the answers are not settled. In my book I emphasize that one must focus on one’s own “circle of influence.” It is here where the vast majority of time the solutions are simple. it is where one can make a huge improvement in one’s own. I emphasize this in my book. I also state that on a personal level, too many people are frozen into personal paralysis because of an almost frantic preoccupation with the holistic approach.

Systems of Government funded by what? That’s where the current system seems to break down. There has to be somebody creating something for the government to exist. Unfortunately in a Democracy the system works only until the people figure out how to give themselves what ever they want by vote. We need to return to the system that created this great experiment before it implodes from the enormous debt. A representative system of government that actually does what it was set up to do. Protect the citizens (even the clueless). I believe the constitution was inspired by God, not like the Bible (but non the less inspired) an inspired work to create a system of government when followed works pretty well.

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